3 Key Political Risks in the Region And How Might It Affect Your Investments

ASEAN, the Association of Southeast Asian nations, is one of the largest political and economic organisations in the world. It was formed in 1967 as a means to build stronger ties between countries in the Southeast Asia region.

Together, members of ASEAN now have a population of 625 million people, which is close to 10% of the world?s population. In 2014, the combined gross domestic product of the 10 countries that make up ASEAN was US$2.6 trillion.

But even with ASEAN?s multi-decade presence, the Southeast Asia region has not been the most politically stable. Over the past 50 years, we have…

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ASEAN, the Association of Southeast Asian nations, is one of the largest political and economic organisations in the world. It was formed in 1967 as a means to build stronger ties between countries in the Southeast Asia region.

Together, members of ASEAN now have a population of 625 million people, which is close to 10% of the world’s population. In 2014, the combined gross domestic product of the 10 countries that make up ASEAN was US$2.6 trillion.

But even with ASEAN’s multi-decade presence, the Southeast Asia region has not been the most politically stable. Over the past 50 years, we have seen civil wars, riots, terrorist attacks, and multiple coups in Southeast Asia. And crucially, it seems that such risks are not going away anytime soon.

Here are three big political risks that I see threatening Southeast Asia and their potential impacts to investors in Singapore.

Thailand

The near-term risks in Thailand might be the most obvious. Thailand is holding a referendum on its new constitution in the coming months. There have been huge controversies surrounding the new constitution – it is widely seen as a constitution that would increase the political power of the Junta in the country.

How the people of Thailand might react to the result of the referendum is unknown. If there is to be another ‘red shirt’ rally, we might see businesses in Thailand negatively affected, at least over the short term.

The main company in Singapore’s stock market that has significant exposure to Thailand is Thai Beverage Public Company Limited(SGX: Y92). Currently more than 95% of its revenue comes from Thailand.

Terrorists

Another growing risk in the region is the threat of terrorism. Over the past few years, terrorist incidents have occurred in Thailand, Indonesia, the Philippines, and even Malaysia. It is unclear how long this risk would last and if it can even be contained.

If the threat of terrorism increases in the region, tourism-related companies might be affected. In Singapore, casino operator Genting Singapore PLC(SGX: G13) and Singapore Airlines Ltd(SGX: C6L) are examples of tourism-related companies that would prefer more stability.

South China Sea disputes

Territorial disputes in the South China Sea is the elephant in the room, with China butting heads against a number of Southeast Asian countries including the Philippines.

Earlier this week, the Permanent Court of Arbitration in The Hague ruled in favour of Philippines in the country’s South China Sea territorial dispute with China. But, China has rejected the decision. This has made many ASEAN nations uneasy. How can each of them protect their maritime territories from China if even the decisions from a highly respected international court has no impact whatsoever on China’s actions?

How the issue plays out may affect many companies with businesses in the region. But, I think the most risks lie with companies that provide support services to oil rigs that are operating in the region. If the jurisdiction for where these rigs are located changes, what would happen to the operation of these rigs? There’s no easy answer but companies such as Ezra Holdings Limited(SGX: 5DN) and Ezion(SGX: 5ME) might want to think about that.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.

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